British Airways Juggles Three Deals

British Airways has woken up and discovered consolidation. It now has no less than two proposed mergers on its plate, with Spain’s Iberia and Australia’s Qantas, along with a planned transatlantic alliance with American Airlines. But successfully pulling off all three deals at the same time will be tricky, and cracks have already begun to appear.

Both Qantas (other-otc: QUBSF – news – people ) and Iberia (other-otc: IBRLF – news – people ) seem to have adopted a “my-deal-or-your-deal” stance since Tuesday, when British Airways (other-otc: BAIRY – news – people ) responded to press speculation by confirming it is in talks with Qantas. On Monday, Qantas Chief Executive Alan Joyce said that “only one” of the proposed mergers could take place, and noted that there were still “significant hurdles” to overcome for a successful Qantas-BA tie-up.

British Airways obviously does not agree, though a spokesman for the airline refused to offer fresh comment. The British carrier is still officially pursuing both potential mergers, and is reportedly even trying to woo Iberia shareholder Caja Madrid into backing a Spanish-British-Australian entity. Iberia Chief Executive Fernando Conte was kept in the dark about BA’s plans with Qantas, which has added to tensions around the negotiating table. (See “Tension Brews Between BA, Iberia.”)

Although BA seems to be giving Qantas priority at the moment, Iberia has a 9.9% stake in the British Airline that may prove vital in approving any Qantas deal.

Shares of British Airways soared 10.1%, or 15.60 pence (23 cents), to 170.0 pence ($2.52), during afternoon trading in London. Leading shares in Europe were up some 7.0%, but the prospect of a BA-led global airline has buoyed investor sentiment in the stock: Qantas, Iberia and American Airlines all represent three different pockets of the world, and BA says there is “no overlap” between them.

The urgency of the economic environment may help BA’s chances, however. Despite the reluctance of Qantas and Iberia to accept a three-way merger, or to bear the brunt of BA’s pension liabilities, they have little room for negotiation. Fixed costs are high, travel demand is crippled and lucrative business profits are hard to find.

“Iberia needs a merger, and Qantas does, too,” said Stephen Furlong, an analyst with Davy Stockbrokers. “It’s hard to say who’s got the upper hand at this point.” He said Qantas was facing fresh competition from upstart Middle Eastern airlines like Emirates, which is reportedly seeking approval from the Australian government to fly between Australia and the U.S.